Pipeline Politics In Central Asia – Analysis

From the end of the 19th century to the mid-1990s, Central Asia was almost the exclusive domain of Tsarist, Soviet, and post-Soviet Russia. A “Great Game” involving Tsarist Russia and the British Empire dominated the region’s history in the mid-19th century and what is now South Asia. The growing multi-polarity in global politics and a scramble to secure access to depleting natural resources, especially oil and gas, have led to the emergence of a “New Great Game’ that has the potential to fix the future structure of the global political and economic system. The battle over the construction of new pipelines and the routes they will take is at the heart of this “New Great Game,” which has been playing out in earnest since the mid-1990s.

The construction of pipelines is of paramount importance for the energy policies of Washington, Beijing, Brussels, and Moscow, making the design, budgeting, and implementation of pipeline projects always thorny and controversial. The proposed Iran-Pakistan-India pipeline project (IPI), which would transport extracted gas from the South Pars deposit in Iran to India through Pakistan, is a case in point. The 3,000-kilometer gas pipeline would require a $7.5 billion investment and a multi-stakeholder collaboration. The project, first floated in 1989, has long been delayed because — among other reasons — Iran has routinely demanded gas price revisions and Pakistan persistently asked for higher transit fees. In reality, however, hidden political motivations are the real culprit for the long delay.

The project is once again officially suspended as of the beginning of 2011. According to the Islamic Republic of Iran Broadcasting, Ghabini Ali Reza, director general of Iran’s Gas Engineering and Development Company — a subsidiary of the National Iranian Gas Company — said on February 19 that the construction of the pipeline has been temporarily put on hold. Iran has the second largest quantity of known fossil fuel reserves in the world, giving it the potential to supply energy to a wide range of natural gas importing countries, such as Pakistan, India, and China. Iranian gas is usually supplied via physical pipelines, but the production of liquefied natural gas for more distant markets is another option.

Since the discovery of large reserves in the South Pars field in 1988 the Iranian government has continued to promote substantial export of gas. High earnings from these rich fields are expected from possible sales of extracted gas to Pakistan and India, where energy demand is high and steadily increasing.

In 1995, Islamabad and Tehran signed a preliminary agreement for the construction of a pipeline that would connect the South Pars field to Karachi, Pakistan’s most important industrial center located on the shores of the Arabian Sea. The Iranian authorities understood that both Pakistan and India would use this gas, with Pakistan acting as both an importer and a transit country. In 1999 India and Iran signed a preliminary agreement, and discussions were then held about the construction of the IPI (Iran, Pakistan, and India) pipeline — also known as the “peace pipeline.” It was thought that mutual energy cooperation and the sharing of Iranian gas would bring about a possible thaw in the tense relations between Islamabad and Delhi. On March 16, 2010, the Iranian and Pakistani authorities signed a final agreement in Ankara to construct the pipeline. However, despite earlier expectations, India was not included in the project.

There were also financial issues at stake. Iran stated that Pakistan was unable to put together the necessary financing. The timing of this statement could not have been more inopportune. The Pakistani economy was in a precarious state and the situation became more complicated due to the widespread flooding that subsequently devastated large parts of Pakistan. Finally, the geopolitical implications of events in Central and South Asia — the NATO military operation in Afghanistan and the uprising in Kyrgyzstan — also presented a major obstacle to the effective fulfillment of the energy export and the security plan.

Many external interests need to be taken into account in the IPI pipeline project, especially those of the United States, China, and Russia. India’s wavering attitude toward the project can be largely attributed to U.S. pressure on Delhi to join other pipeline projects and Washington’s downplaying of the potential benefits of the IPI. It stands to reason that a gas pipeline linking Iran, Pakistan and India would have significant geopolitical implications. The countries involved in the IPI pipeline project have varying interests and policies.

Iran and the United States

The delays in the implementation of the project have been caused by the state of bilateral and trilateral relations between the individual states involved.

U.S. interests are considered paramount. Since the collapse of the Soviet Union, the United States is attempting to control a significant portion of the world’s energy supply via control of the oil and gas reserves in Azerbaijan and the former Soviet republics of Central Asia, and the establishment of allied regimes in Afghanistan and Iraq. For the United States, the struggle over energy resources is further complicated by China and India’s continual and desperate search for more and more energy supplies, which are essential to maintain their speedy development. The future of Iranian energy policy is therefore a serious consideration for long-term U.S. interests. Iranian domination of the Persian Gulf and the implementation of the IPI project would hinder Washington’s objective of isolating Tehran internationally.

The United States is strongly opposed to any type of energy project that involves Iran, as it is wary of Pakistan and India becoming dependent on Iranian energy supplies. The United States continues to actively interfere in the region as it tries to prevent these countries from taking part in the IPI project. Washington is actually sponsoring the construction of an alternative pipeline, and Iran has clearly not been given the opportunity to become directly involved in this project. The Americans are promoting the TAPI (Turkmenistan, Afghanistan, Pakistan, and India) pipeline project, which would transport natural gas from the former Soviet republic of Turkmenistan directly to India via Afghanistan and Pakistan. This project, however, is largely contingent on U.S. and NATO stabilizing Afghanistan.

Projects benefiting U.S. geopolitical and energy plans draw wary looks from Russia and China. Under the U.S. plan, Kabul would be an integral part of a safe corridor for energy flows running from the Caspian Sea through Central Asia to end users in Pakistan and India. This would bypass the Russian and Chinese routes that presently supply much of the energy in the region.

China, India, and Pakistan

As for India, the Americans are trying to dissuade Delhi from signing any agreements with Iran, a country that Washington considers a “rogue state.” Unsurprisingly, tensions between the United States and Iran have influenced Indian energy policy. Indeed, it is difficult for Delhi to bargain with Iran over an energy agreement while it is developing a civil nuclear program of its own with the contribution and consent of the United States. Secondly, India’s high mistrust of Pakistan has stalled talks on energy projects involving both countries. This has led to India’s current suspension of participation in the IPI project.

Despite U.S. caution, India has nevertheless strengthened diplomatic ties with Iran. These closer relations were demonstrated by the joint financing of the port construction in Chabahar, an important energy transit point located in southeastern Iran. This collaboration has proved strategically and economically important in promoting Indian exports to Central Asia, which are now delivered via Iran — bypassing Pakistan.

India has many doubts about the IPI pipeline. First, India and Iran have not yet agreed on gas pricing levels. India has always insisted on importing high-quality gas from Iran at internationally accepted prices. Second, India is concerned over the details of Iran’s plan to route the pipeline through Pakistan and its provinces. Iran wants the pipeline to pass through Baluchistan, one of the poorest and most remote areas of the country — and a highly unstable region noted for the political activities of hostile nationalist and separatist forces. Tehran has been fighting Baluchi nationalist independence movements in the Iranian provinces of Sistan and Baluchistan, which border Pakistan. The insurgency in Baluchistan has dragged on for years. Jundallah, the Sunni terrorist organization also known as the People’s Resistance Movement of Iran, is also allegedly operating in the Baluchi areas of Pakistan and Iran and in the southern provinces of Afghanistan, among other places. The countries involved in the IPI project worry that terrorist acts will be launched to sabotage the pipeline.

India has two additional concerns about Pakistan: the transit tax that Islamabad claims it will impose and the possible interruption of gas supplies. India fears that if new diplomatic tensions develop with Pakistan or if the Kashmir conflict reignites, Pakistan would be in a position to stop energy flows to India, similar to what Russia did to Ukraine during their 2006 and 2009 gas disputes. India is also hesitant about the construction of the TAPI pipeline, sponsored by Washington. New Delhi doubts about TAPI’s actual ability to effectively pump Turkmen gas in adequate volumes, and it expects continued and long-term insecurity in Afghanistan. The United States, however, is still trying to steer India toward other energy sources, including liquefied natural gas from Australia, Qatar, and other Gulf countries.

Pakistan is concerned with the potential hegemonic status India could gain if it became actively involved in the IPI pipeline. Indeed, Pakistani authorities have devised a plan to encourage the active participation of China — a traditional ally of Islamabad and rival of New Delhi — in the project rather than India. Beijing has shown serious interest in this project, as it would effectively increase Chinese influence in South Asia at the expense of both the United States and India. Moreover, Islamabad would benefit, at least hypothetically, from the inclusion of China. Pakistan urgently needs energy, but Tehran will probably not support the project without a third party. Indian or Chinese involvement would guarantee substantial profits for Iran. With China as a partner, Islamabad would be provided with important gas transit revenues and would gain sizeable political dividends through further strengthening its alliance with Beijing. From another perspective, however, Pakistan and Iran’s insistence on adding China in the project can be interpreted as a means of applying pressure on New Delhi to make a final decision on its involvement with the IPI proposal.

For Beijing the project bears both risks and opportunities. By becoming the main partner in the construction of the pipeline from Iran through Pakistani territory, or the main beneficiary of potential natural gas liquefaction shipped from the deep sea port at Gwadar in the Pakistani province of Baluchistan, China would create an important energy axis that would enhance its energy diversification strategy — as well as helping it meet its ever growing domestic energy demand. Only political and social instability in restive Pakistani and Chinese regions might persuade China to pull out of the project. If it does not reach the port of Gwadar, where liquefied natural gas terminals will soon be built, the pipeline will pass through unstable regions such as the Pakistani province of Gilgit-Baltistan, the northernmost political entity within Pakistan, and the Xinjiang province in China, also known as Eastern Turkestan, where indigenous Uighur consistently make separatist noises. The project is made even riskier by possible sabotage of the pipeline by rebel groups.

According to another reading of China’s flirtation with Pakistan and Iran over the IPI project, it aims to influence Russia in the ongoing negotiations between the two countries over gas supply, prices, and pipeline routes linking East Siberia and China. Beijing could brandish gas supplies from Iran as a possible alternative to Russia’s. It’s no secret that China, like the EU, does not want to become too dependent on Russian energy sources. Closer participation in Asian energy projects would also do much to promote the Chinese objective of gradually increasing its influence in the area in order to create what is often called the “string of pearls” around the Indian Ocean. China’s covert objective in South and East Asia is to put on track a pipeline linking Iran, Pakistan, and China via the Karakorum Mountains, which span the border between the latter two countries. This would be part of a strategy to push for greater Sino-Pakistani cooperation in developing the Pakistani port of Gwadar into a Chinese-controlled energy hub that would be, according to Washington, protected by a Chinese naval base. In this way, Chinese involvement in a project to supply Iranian gas would render ineffective the international isolation of Tehran sponsored by Washington.

In order to prevent China’s participation in large pipeline projects in South Asia, the United States has proposed another option, consisting of substantially increasing the export of cheaper Saudi oil to China. A clear response to this offer has not yet been forthcoming.

Russian Interests

Although China may tap into various other energy sources, Russia welcomes the possible construction of the IPI pipeline. Moscow is determined to maintain a dominant position in gas supply within the European market and is continually looking for new mone-making opportunities. Much of its economic base is founded on energy companies and the infrastructure of the oil and natural gas industry. Russia is ready to help establish the IPI pipeline in order to divert Iranian gas to Eastern markets, rather than Western, thus removing a potential major competitor. Russia’s dominance in the transport of energy from the Caspian Sea area would thus be secured.

Moreover, Russia is very much interested in creating a north-south energy corridor and establishing closer commercial ties between South Asia and Europe via Russian territory. Moscow assumes Pakistan, India, and Iran are also interested in these energy and commercial plans. Moscow considers the IPI as a possible deterrent to Sino-Russian competition in Central Asia and, above all, a counterpoint to U.S. interests in the region.

Gazprom is heavily involved in the implementation of the IPI, and Russian investment could encourage the construction of the pipeline. Its involvement dates back to 1995, when a memorandum of understanding was signed between Gazprom and the Gas Authority of India Ltd for the construction of the IPI. The behemoth Russian energy company is now developing the South Pars fields in the Persian Gulf and wants to participate in projects intended to increase the production of LNG from Iran. Gazprom is also very much interested in the IPI project — even if China is included. The inclusion of Russia’s huge southeastern neighbor is a necessary step in the integration of the economic, energy, and commercial interests of Russia, China, India, Pakistan, and Iran.

The geopolitical and geo-economic impact of the IPI and TAPI pipelines in Asia, the energy integration of East Asia with South Asia and West Africa, and the increasing role that Iran would play in these processes are all burning issues in the discussion of global energy supplies. Russia’s desire to maintain European gas supply dominance, the growing list of countries which need gas, and India and China’s interest in gaining greater authority in Asia are also important factors. All these issues, however, revolve around one undeniable catalyst: the construction of a pipeline, the consequences of which have yet to be fully understood.

U.S. Challenges

U.S. energy policy, and the major factors in maintaining U.S. national security and economic dominance, is based on secure access to energy, the continuity of supply, and maintaining relatively inexpensive oil prices. However, most of the world’s oil is concentrated in places that are hostile to U.S. interests, or vulnerable to political upheaval or terrorism. Regardless, oil remains on the cutting-edge of many immediate challenges faced by U.S. foreign policy makers and military planners. There will be no easy solutions until the U.S. government and American consumers develop an alternative infrastructure to its overwhelmingly oil-based economy. In the meantime, every effort will be made to secure existing oil supplies and guarantee the continuity of supply. Such efforts are the driving force for U.S. foreign policy and its accompanying military doctrine.

Most analysis dealing with U.S. foreign policy and the country’s expanding energy consumption suggest that oil imports will continue to increase in the coming decades. The United States will be forced to seek new sources of fossil fuels due to political and economic changes in regions where it currently receives its supplies. Until now, U.S. foreign policy has failed to adequately redirect its foreign policy focus toward regions well endowed with different types of energy resources.

The United States must establish bonds of trust with Central and South Asian countries to meet its future energy needs because its allies and its enemies alike will themselves have to obtain more energy from these regions. Washington must reflect on its policy direction and carefully rethink its relations with Russia if it still aspires to become an important partner in the exploitation and development of Siberian oil and gas fields. The Obama administration took the first step in this direction by hitting the “reset” button in U.S.-Russia relations. Moreover, the United States needs to develop deeper commercial ties with countries of Central and South Asia, even though some regional governments continue to ardently disapprove of current U.S. policy. Trade agreements must be concluded with some monopolistic state-owned producers that are adamant in preserving their absolute sovereignty over their strategic natural resources. Finally, Washington has to consider the option of negotiating agreements with other large energy consumers (China, India, Japan, and the EU) and Central and South Asian producers/exporters to avoid costly armed and diplomatic wars based on stiff competition for limited resources.

Richard Rousseau

Richard Rousseau is Associate Professor and Chairman of the Department of Political Science and International Relations at Khazar University in Baku, Azerbaijan. He teaches on Russian politics, Eurasian geopolitics, international political economy and globalization. He can be reached at [email protected] or [email protected]